UnitedHealth Is Just What the Doctor Ordered for Defensive Investors

NEW YORK (TheStreet) -- Benjamin Graham taught that intelligent investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. By using our ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries.

Here is our specific look at how UnitedHealth Group (UNH) fares in our valuation model.

In our view, there are two types of investors: defensive (more conservative, less able to conduct research) and enterprising (more willing to take risk and conduct research). Any stock suitable for a defensive investor is also appropriate for an enterprising investor. Let's look at how the stock fares for each type of investor.

Defensive Investor -- must pass at least 6 of the following 7 tests: Score = 6/7

UnitedHealth Group is suitable for both defensive investors and enterprising investors. The company passes all of the defensive investor's requirements except the current ratio, and although the enterprising investor should be a bit concerned with the high level of debt relative to current assets, the company qualifies for both investor types. As a result, value investors should feel comfortable proceeding with further research into the company and its competitors.

From the valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.36 in 2010 to an estimated $5.24 in 2014. This level of demonstrated growth exceeds the market's implied estimate of 3.11% earnings growth and leads us to calculate an estimate of intrinsic value that is well above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company's prospects.

What do you think? What value would you put on UnitedHealth? Where do you see the company going in the future? Is there a company you like better? Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

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